Having analyzed the behavior of macroeconomic and monetary indicators, the Board of the National Bank of Ukraine pointed to stronger inflationary risks. In January 2015, the consumer price index was up by 28.5% year-on-year.
The foreign exchange market in Ukraine is currently under stress, primarily due to the negative expectations amid the ongoing military conflict in the East of the country. Since the start of the year, UAH/USD exchange rate has depreciated by about 80%.
However, even given the extraordinary conditions in which Ukraine's economy operated, the said devaluation of hryvnia is deemed excessive and inconsistent with the fundamental macroeconomic parameters.
The aforementioned has called for the need for the National Bank of Ukraine to put in place comprehensive measures in the money market and mitigate risks threatening price stability in the mid-term.
In view of the above, coupled with tightening administrative measures put in place in the foreign exchange market, the National Bank of Ukraine is set to deploy the interest rate policy as an active instrument to curb the devaluation pressure on the hryvnia.
This said, the National Bank of Ukraine raises interest rates on its operations, and is prepared to increase
them further, if required, in an effort to shore up the intrinsic value of the national currency.
The decision to further tighten the monetary policy is needed to prevent the destructive developments in the money market and limit their adverse impact on the overall economic situation.
Once the signs of easing tensions become evident, which is expected following the de-escalation of the military conflict, and the receipt of financial assistance from international financial institutions in the near future, leading, accordingly, to lower inflationary risks, the National Bank of Ukraine intends to gradually ease the monetary policy stance.
In view of the above, pursuant to Articles 6 and 25 of the Law of Ukraine On the National Bank of Ukraine, Regulation on the NBU Interest Rate Policy approved by NBU Board Resolution No. 389 dated August 18, 2004 (as amended), on March 2, 2015, the Board of the National Bank of Ukraine passed Resolution No. 154 On the Money Market Regulation, which, inter alia, envisages that the discount rate should be set at 30%, effective from March 4, 2015.
For reference
Pursuant to item 1 of NBU Board Resolution N. 81, dated February 4, 2015, "On the Money Market regulationt", the discount rate was set at 19.5% per annum, effective from February 6, 2015.